Is There Now An Opportunity In Toromont Industries Ltd. (TSE:TIH)?

While Toromont Industries Ltd. (TSE:TIH) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Toromont Industries’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Toromont Industries

Is Toromont Industries still cheap?

According to my valuation model, the stock is currently overvalued by about 38%, trading at CA$74.09 compared to my intrinsic value of CA$53.60. This means that the buying opportunity has probably disappeared for now. Furthermore, Toromont Industries’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Toromont Industries?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 2.1% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Toromont Industries, at least in the short term.

What this means for you:

Are you a shareholder? TIH’s future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe TIH should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on TIH for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Toromont Industries at this point in time. You'd be interested to know, that we found 2 warning signs for Toromont Industries and you'll want to know about them.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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